CP makes case for rail industry consolidation

Changing the status quo in the North American rail industry is necessary to support the continued growth of the North American economy, according to a report released by Canadian rail operators, Canadian Pacific (CP) ealier this month.

According to CP, which is currently pursuing a takeover of US rival, Norfolk Southern, continued growth in the US economy is dependent on North American rail service meeting current and future demand: “The question of how to create additional capacity to accommodate growth is a critical one. Adding infrastructure and building more track have become increasingly difficult, if not impossible.”

“The solution lies in adding capacity without adding infrastructure, increasing the efficiency of the overall network and addressing critical issues, such as congestion in Chicago,” CP continued in the report, ‘A 21st Railroad for a 21st Century Economy’. “CP believes that industry consolidated offers the best opportunity to improve efficiency [creating] much needed incremental capacity without adding infrastructure.”

Norfolk Southern rejected CP’s latest offer on 23 December, calling it “grossly inadequate” while creating “substantial regulatory risks and uncertainties that are highly unlikely to be overcome” – a reference to the fact that any merger would need to be approved by the US Surface Transportation Board (STB).

In rebutting these competition concerns, the report argues that a merger between CP and Norfolk Southern would “not reduce rail competition as out two networks are end-to-end (they do not overlap).” It also said that it was willing to adopt “competitive enhancements” as suggested by shippers.

CP also said that it believed a merger with Norfolk Southern would not spur further industry consolidation – a key consideration for the STB in approving any combination of Class 1 railroads.

“Serious consideration must be given to this innovative option if the industry and economy is to grow and prosper,” concluded CP in the report. “Ironically, some have voiced concerns that consolidation will lead to service disruption. The fact is, merger-related disruptions are not inevitable […] without industry consolidation, however, future service disruptions are a certainty.”